Wed, Feb 02, 2011 - Page 10 News List

Flawed chipset expected to cost Intel US$1 billion

ACCESS ISSUES:Computers with the flawed chipset started shipping on Jan. 9, and Intel had already sent out 8 million of them before the problem had been identified

NY Times News Service, SAN FRANCISCO

Intel said on Monday it had stopped shipping a new chipset after discovering a design flaw that might cause 5 percent of the chips to fail over the next three to five years.

The loss in revenue and the fixing of the nearly half a million laptop and desktop computers that contain the chipset are expected to cost Intel US$1 billion.

Intel said that the Series 6, or Cougar Point, chipset, which controls the movement of data to hard drives, DVD drives and monitors, has a failure rate of 5 percent over the typical three to five-year lifespan of a computer. Over time, some of the connection ports on the chipset can degrade, potentially blocking consumers from reaching their stored data. However, Intel said that the problem did not delete the data and that consumers would still be able to get to it by moving a hard drive to another computer.

Computers with the flawed chipset, which is for use with -second-generation i5 and i7 quad-core processors, started shipping on Jan. 9. By the time Intel identified the flaw and stopped production, it had already shipped eight million chipsets, not all of which had been placed in new computers.

A modified version of the chipset will start shipping late this month, Intel said.

Although analysts described the halt in production as an embarrassment, they said it was unlikely to have a long-term impact.

Intel said that tests of the chipset before its public release uncovered no issues. Only after computer-makers returned a few problem chips, after their tests, did Intel discover the flaw, said Stephen Smith, vice president for Intel’s personal computer client operations.

“Intel believes that consumers can continue to use their systems with confidence while working with computer manufacturers for a solution,” he said on a conference call on Monday.

The interruption in production is expected to reduce Intel’s first-quarter revenue by US$300 million, Intel said. And US$700 million more is expected to be spent on fixing the chipsets and replacing those already built into computers. Because of the chipset design flaw, Intel said it will take a charge that will reduce last year’s fourth quarter gross profit margins by about 4 percentage points from the 67.5 percent it previously reported.

Separately, Intel tempered the bad news with an updated first-quarter forecast. It expects to gain from the acquisitions of Infineon Technologies’ wireless unit and McAfee, the computer security company, which should offset the loss from the chip flaw. The McAfee deal should close by the end of next month, Intel said.

First-quarter revenue is expected to be US$11.3 billion to US$12.1 billion, up from an earlier forecast of US$11.1 billion to US$11.9 billion. Gross margins should be about 61 percent, compared with the previous forecast of about 64 percent, Intel said.

For the full year, Intel said it expected the percentage growth in revenue would be in the mid to high teens, versus about 10 percent growth, which it had previously predicted.

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